New Auto Loan Origination Contraction Slows at CUs

The latest forecasts for new auto loan originations at credit unions appear to be positive but with some caveats.

While the rate of portfolio decline at credit unions is slowing, CUNA Mutual Group Chief Economist Dave Colby said his discussions with credit union leaders nationwide indicate that the slowdown in the rate of decline is due to reduced levels of amortization, payoffs and defaults, not to new loan originations.

“Credit unions continue to slowly build their used vehicle loan portfolios on an annual basis. The new vehicle portfolio is less of a drag on growth after hitting peak contraction of 17.1% in October 2010,” Colby said in CUNA Mutual’s May Credit Union Trends Report.

The current forecast assumes that continued declines in new vehicle loans will not be offset by modest gains in the used portfolio, Colby said, adding he expects vehicle loans to fall again in 2011 before turning fractionally positive in mid-to-late 2012.

Year-over-year total vehicle loan demand for credit unions increased from February’s pace of a negative 4.8% to a negative 4.1% in March, according to NAFCU’s May Economic and CU Issues Monitor. New vehicle lending for all credit unions year over year through March continued to contract by 14.5% to $61.9 billion while used vehicle loan demand grew by 3.4% to $103.1 billion. At the end of March, vehicles totaled $165 billion, which comprised 28.7% of total loans.

In an early May survey of the industry’s five regions, NAFCU found that expectations for new vehicle loan demand were negative. Four of the five regions are expecting a decrease in loan demand over the next 12 months. Meanwhile, expectations for used vehicle loans were positive, with all five regions expecting an increase in loan demand for the same time period.

Still, NAFCU Chief Economist Tun Wai is optimistic about new vehicle loans, saying in the report, “The outlook for the new vehicle market is improving and should show a steady upward trend as the overall U.S. economy improves.”

During April, total vehicle sales on a seasonally adjusted, annualized basis rose from 13.1 million units in March to 13.2 million units, NAFCU reported. Car sales in April declined from March’s rate of 7 million annualized units to 6.8 million annualized units, while sales of light trucks increased from 6.1 million annualized units to 6.3 million annualized units over the same time period.

All of the six biggest automakers reported increases in their year-over-year sales numbers, according to NAFCU. General Motors reported the strongest increase in sales with 26.6%, followed by Chrysler with 22.5%, Ford with 16.3%, Nissan with 12.2%, Honda with 9.8%, and Toyota with 1.3%.

The domestic manufacturers’ share of the total vehicle market improved from 43.4% in March to 46.6% in April. At the same time, the import share of sales declined from 24.7% to 23.5%. Vehicle sales are expected to be at least 13.2 million units in 2011, but sales are still weak compared to the pre-recession annual pace of over 16 million units, NAFCU said.

Meanwhile at credit unions, nonrevolving credit decreased by $9.3 billion, a drop of negative 4.8% to $184.5 billion. The overall nonrevolving credit market increased by 2.8%. At the end of March, credit unions’ share of the $1.6 trillion nonrevolving credit market was down from the year-ago level of 11.5% to 11.4%, NAFCU data showed. Year-over-year total vehicle loan demand for credit unions increased from February’s pace of a negative 4.8% to a negative 4.1% in March.